FOREX Fundamental analysis for EURUSD on May 24
Investors were disappointed by the Eurozone business activity indexes, and the divergence of economic growth between the New and the Old World is not in favor of the euro. EUER/USD is developing a downward correction, and the deeper it is, the more chances for the change of the trend.
And in the United States business activity indexes in May are pleasing analysts. The composite PMI climbed to a 13-month high, which confirms the resilience of the economy to the Fed's tightening of monetary policy, although it raises concerns of Jerome Powell's team, since a decline in business activity is required to defeat inflation. Consequently, there is nothing to prevent the Fed from continuing monetary tightening. The probability of a rate hike in July has risen to 42%.
At the same time, weak Eurozone PMIs are severely limiting the ECB's options. Goldman Sachs notes a significant narrowing of the monetary differential between European and U.S. regulators, which together with other factors allows the dollar to strengthen in the short term. The greenback is unlikely to strengthen in the long term and the bank has kept its forecast for EUR/USD at 1.1 by the end of the year.
The story with the debt ceiling works against the dollar. Investors understand that the problem will eventually be solved before June 1, but the feeling of uncertainty is holding back the currency trading activity on forex.
However, if an agreement is reached between the Republicans and the Democrats, the dollar will let go of the brakes, which will send EUR/USD into a deeper drawdown. Rumors about the pair's decline to the parity area have appeared on the market again, which looks rather doubtful so far, since the Fed, though it keeps a "hawkish" policy, is in the final part of the interest rate raising cycle.
I believe the Fed will not raise the rate above 5.5% and I hope that the Chinese economy will show signs of stable growth and the European currency will come to its senses, though later than it was expected. The pivot level for EUR/USD is still 1.076. If the buyers are unable to break above it, the pair will go to 1.0715 and 1.0665.